The slope of the demand curve for money is:
A) vertical.
B) horizontal.
C) positive.
D) negative.
If real GDP exceeds aggregate expenditures, the economy will:
A) contract, reducing employment.
B) expand, causing inflation.
C) expand, increasing employment.
D) neither contract nor expand, holding employment constant.
It took India more than 40 years to exhibit high economic growth after it gained
independence from British rule in 1947. This faster rate of growth resulted from:
A) a more stable government.
B) better infrastructure.
C) higher investment in human capital.
D) a reduction in the burden of corruption.
All else being equal, if the aggregate price level falls, the planned expenditure curve
will:
A) slope downward.
B) shift upward.
C) shift downward.
D) turn horizontal.
An argument against Britain’s adopting the euro was that using the euro would make
trade more difficult and decrease British productivity.
A) True
B) False
Table: Measuring GDP
Look at the table Measuring GDP. GDP is equal to:
A) $500 billion.
B) $850 billion.
C) $995 billion.
D) $1,000 billion.
The Dodd-Frank bill addressed all of the following issues EXCEPT:
A) consumer protection.
B) regulation of shadow banks.
C) election of members of the Federal Reserve Board of Governors.
D) regulation of derivatives.
Table: Price and Output Data
Look at the table Price and Output Data.
Between years 4 and 5, nominal GDP increased by:
A) 33%.
B) 75%.
C) 50%.
D) 13%.
Most economists believe that the budget should not be balanced annually but should be
allowed to function as an automatic stabilizer.
A) True
B) False
Scenario: Good A and Good B
The town of York produces two goods, good A and good B. The following is
information regarding York’s production of these two goods and their prices over three
years.
Look at the Scenario Good A and Good B. With 2009 as the base year, real GDP was
greatest in:
A) 2009.
B) 2010.
C) 2011.
D) its base year always.
If a country has a population of 1,000, an area of 100 square miles, and a GDP of $5
million, then its GDP per capita is:
A) $500.
B) $5,000.
C) $50,000.
D) $5 million.
An inflationary gap occurs when:
A) prices are too low.
B) real output is too low.
C) potential output exceeds actual output.
D) actual output exceeds potential output.
Scenario: Holding Cash
Suppose that the public holds 50% of the money supply in currency and the reserve
requirement is 20%. Banks hold no excess reserves. A customer deposits $6,000 in her
checkable deposit.
Look at the scenario Holding Cash. The money multiplier is:
A) 2.
B) greater than 5.
C) 5.
D) less than 5.
Assume the money market is in equilibrium. The Federal Reserve Bank has decided to
purchase Treasury bills in an open market operation. The result of this action will be a
_____ in the interest rate as the money _____ shifts _____.
A) fall; supply curve; outward
B) fall; supply curve; inward
C) fall; demand curve; inward
D) rise; demand curve; outward
Domestically produced goods and services sold to people in other countries are known
as:
A) imports.
B) investments.
C) exports.
D) transfer payments.
In the 1970s and first half of the 1980s the U.S. economy had high inflation and high
unemployment.
A) True
B) False
Scenario: Exchange Rates
The value of a euro goes from US$1.25 to US$1.50.
Look at the scenario Exchange Rates. The dollar has:
A) depreciated.
B) appreciated.
C) been revalued.
D) not been affected for use in international trade.
If a country has a very high level of public debt, lenders may insist on austerity
measures of raising taxes and decreasing government spending, which worsens
economic conditions.
A) True
B) False
The slump that followed the 2008 financial crisis is called the:
A) Great Depression
B) Great Moderation.
C) Great Recession.
D) Great Modernization.
Suppose that a Ford costs $20,000 in the United States and 10,000 in Britain.
Purchasing power parity is an exchange rate of 2 per dollar.
A) True
B) False
Keynesian economics emphasized the:
A) role of money.
B) long run.
C) impact of changes in aggregate demand.
D) impact of changes in aggregate supply.
In an economy with no international trade, no government expenditure, no transfers,
and no taxes, disposable income equals GDP. Therefore, it follows that:
A) as GDP increases, planned aggregate spending decreases.
B) consumption equals investment spending.
C) as GDP decreases, planned aggregate spending decreases.
D) investment spending equals disposable income.
According to the life-cycle hypothesis, wealth affects consumer spending because:
A) wealthier people have higher incomes.
B) wealthier people have better connections to buy in-demand goods.
C) people try to smooth their consumption over the course of their lives.
D) people try to consume as early in their lives as they can.
Monetarists believe that:
A) full employment is the norm.
B) countercyclical policies do not affect the economy.
C) a fixed increase in the rate of growth of the money supply is better than discretionary
policies.
D) discretionary monetary policy is better than a fixed growth rate of the money supply.
In the market for grass-fed beef, what would cause a price increase?
A) The price of chicken decreases.
B) Doctors tell patients that beef is full of saturated fat that causes heart attacks.
C) The prices of grass and corn increase.
D) There is a movement in the United States toward vegetarianism.
If two variables are negatively related, they will always be represented by:
A) a line or curve that slopes downward.
B) a straight line.
C) a horizontal line.
D) a line or curve that slopes upward.
Bank runs today are not as frequent or as harmful to the economy as they were in the
1930s because today depositors are protected with FDIC deposit insurance.
A) True
B) False
In response to a negative supply shock, the government decreases taxes. The most
likely result of the government’s tax decrease is a(n) _____ in unemployment and a(n)
_____ in the aggregate price level.
A) decrease; increase
B) decrease; decrease
C) increase; increase
D) increase; decrease
In terms of the production possibility frontier, inefficient use of available resources is
shown by:
A) an increase in the labor force growth rate.
B) a movement from one point to another along the production possibility frontier.
C) an inward shift of the production possibility frontier due to the lack of opportunity.
D) production at a point inside the production possibility frontier.
If the government’s revenues are greater than its expenditures, then it has a budget:
A) deficit.
B) surplus.
C) balance.
D) equality.
Figure: Supply of Loanable Funds
Look at the figure Supply of Loanable Funds. When the interest rate rises from 6% to
8%, the:
A) supply of loanable funds rises by $20 billion.
B) quantity supplied of loanable funds rises by $20 billion.
C) supply of loanable funds falls by $10 billion.
D) quantity supplied of loanable funds falls by $20 billion.
The market for loanable funds is in equilibrium. All else equal, the federal deficit is
growing. Describe how this will affect the market for loanable funds, the equilibrium
interest rate, and the equilibrium quantity of loanable funds.
Suppose the economy is initially in long-run equilibrium and there is a positive demand
shock. Describe the short-run effects of this demand shock and how the economy will
adjust in the long run.
Suppose the economy is significantly weakened, real GDP is far below potential GDP,
and the unemployment rate is high. The Federal Reserve is concerned that monetary
policy might have limited effectiveness because of deflation. How can deflation limit
the Fed’s ability to increase aggregate demand?
How would a significant fall in the interest rate on short-term certificates of deposit
(CDs) affect the money demand curve?
Fifty years ago East Asia, Latin America, and Africa were all relatively poor areas. Why
did East Asia have fairly rapid growth in real GDP per capita while economic growth in
Latin America and Africa was generally low?
Suppose a nation is considering two alternative policies to protect a domestic industry
from world trade. The two policies are an import quota of Xunits and a per-unit tariff
that would reduce imports to Xunits. Though either policy would result in only
Ximported units of this good, there is a fundamental difference in the outcome. Explain
this difference.
Suppose the Federal Reserve wants to increase the supply of money. How could the
Federal Reserve’s tools of monetary policy achieve this goal?
A single woman attorney hires a local firm to mow the grass, rake the leaves, and trim
the rose bushes. After several years she and the owner of the lawn service fall madly in
love and get married. After the honeymoon, her new husband takes care of the yard
maintenance, and she no longer pays his company the monthly fee. What has happened
to GDP?
Figure: The Market for Digital Cameras with Tariff
Look at the figure The Market for Digital Cameras with Tariff. The domestic price is
PAand the world price is PW. The government decides to impose a tariff on each
imported digital camera, and the new price is Pt. Identify the area corresponding to the
tax revenue collected by the government. Identify the area corresponding to the
deadweight loss that results from the tariff.
Why do many clothing stores have big after-Christmas sales on their merchandise?
Suppose that the public expects inflation to increase from 3% to 4% this year. How will
this affect the short-run Phillips curve?
What is maturity transformation? Explain the difference between maturity
transformation by depository banks and by shadow banks.
What caused the banking crises in the 1990s in Finland, Sweden, and Japan?
Describe the financial contagion that occurred during the Irish banking crisis in 2008.
If the economy is operating at potential output, how does a contractionary monetary
policy affect short-run and long-run prices and real output?